The Science Based Targets initiative (SBTi) on Monday sought to extend its reach into the investment community, with the launch of new tailored guidance to help private equity firms set credible decarbonization goals for their operations and portfolios.
The launch came as the group announced the first six private equity firms have had their emissions goals validated as being in line with a 1.5 degrees Celsius warming trajectory. Astorg, Bregal Investments, FSN Capital, Hg, Intermediate Capital Group (ICG) and Investindustrial, all of which boast multi-billion dollar portfolios, have had their targets approved by the SBTi.
Moreover, Altor Equity Partners, Eurazeo, Montagu Private Equity, Tikehau Capital and Triton Partners committed Tuesday to having their SBTi targets approved within two years.
The new guidance has been specifically designed for the ownership models favored by private equity firms and has been developed in partnership with consultancy Anthesis and with support from the UN Principles for Responsible Investment (PRI) initiative and signatories of Initiative Climat International (ICi)
“The urgency to make significant change, quickly, has only increased in this last year,” said Alberto Carrillo Pineda, managing director and co-founder of the SBTi. “Since the latest IPCC report, we know there is an immediate urgency to shift to more sustainable practices as soon as possible — especially in the financial sector. A tailored guidance for private equity firms helps achieve these goals by enabling efficiency and accelerating the process for investors to establish science-based targets. It is a massive success within the sustainable finance sector and will drive change at the pace we need.”
It is a massive success within the sustainable finance sector and will drive change at the pace we need.
The move could prove to be particularly significant given private equity has long been regarded as something of a challenge to investor-led decarbonization efforts, given firms that are moved into private hands can be less exposed to the investor pressure and climate disclosure rules being imposed on publicly listed firms.
However, the new guidance aims to help encourage private equity firms to engage with the companies they own to embrace decarbonization best practices.
Specifically, the guidance aims to identify challenges private equity firms commonly face to develop and achieve targets, and provide recommendations to overcome these barriers, while taking regional differences into consideration. “Its release intends to raise the ambition of the private equity industry by defining and promoting best practice in science-based target setting and providing methods, criteria, guidance and tools to reduce the barriers to adoption and implementation.”
The launch was welcomed by Fiona Reynolds, CEO of the UN PRI, who said the guidance would allow private equity firms to “align their activity with best practice across the wider investment industry and to move towards decarbonization of the real economy — and therefore real, impactful action on the climate crisis.
“We urge private equity firms to engage with the guidance and where possible, encourage them to adopt the portfolio coverage method for control investments, which is designed to deliver the most comprehensive alignment on net zero across a firm’s portfolio of companies.”
Its release intends to raise the ambition of the private equity industry.
Her comments were echoed by Tim Clare, director for ESG Advisory Services at Anthesis, who said private equity firms had a key role to play in driving forward the net zero transition.
“Through private equity investors’ direct involvement and influence with so many private businesses, they are uniquely positioned to activate significant GHG reductions in the real economy,” he said. “Private equity firms that align to this SBT PE Guidance will help drive the market shift needed to transition the sector towards a low carbon economy. It has been pleasing to collaborate with the SBTi and many leading private equity firms who understand this and see science-based GHG reductions as crucial to the long-term resilience of their investments.”
The launch of the new guidance comes ahead of a new Net-Zero Standard for Financial Institutions, which the SBTi is planning to launch in 2022 in a bid help the wider sector standardise and accelerate financial climate action in support of the various net zero goals announced across the industry in recent years.